UK’s single family rental spree leads growth in Europe

Netherlands loses the crown, with the greatest potential in France

July 27, 2023
  • Emma Rosser

The UK has historically been a nation built on home ownership, or more specifically, house ownership. Successive governments pinned new housing supply to incentives aiming to encourage new buyers to get a foot on the property ladder. In a new era of increased costs, that model is under pressure. Homebuying has become harder, but the picket-fence dream for many still exists.

The UK’s housing stock is 80% houses, the second-highest proportion in Europe, according to the OECD. Those houses tend to be owned, with renting much more common in small properties. But the private rented sector is large and growing, while the UK’s preference for houses means an estimated 3 million rental houses exceeds the 2.3 million rental flats.

Currently, institutional investors own 3% of rental flats, but just 0.3% of rental houses, but this is changing as investors expand into the sector from new-build multifamily flats. In 2023, investment into single-family rental (SFR) – i.e., purpose-built rental houses, not multifamily flats – topped £3bn (€3.4bn), making the UK the largest market in Europe for this asset class.

Strong foundations

Prior to this year, the Netherlands had been the most active for single family rental investment, having attracted €2.9bn in single family investment between 2009 and 2022.

Much like the UK, the Dutch housing market has a large share of houses, accounting for 75% of housing stock in the OECD statistics. Activity within this market has been spurred by large portfolio sales of regulated rental properties.

Institutions across Europe have been attracted to social and regulated housing, providing secure income streams. However, policy around these properties has been uncertain and changing. This has driven volatility in the levels of investment across all tenures, for example with a surge of transactions in 2020 ahead of large increases in the property transfer tax payable by investors.

In 2023, difficulties in financing typically larger built stock acquisitions solidified that slow-down. At the same time, the UK’s volume housebuilders have embraced investor sales as a key part of their sales model.

Some 76% of SFR investment in the UK focussed on new development, compared to 4% in the Netherlands. Strategic partnerships between builders and institutions have laid the foundation for investment, with often small schemes, that are less reliant on debt, pushing the UK to the top spot for Europe. Together these strategies aim to create portfolios of £12bn in value, JLL estimates, pointing to continued growth of the sector.

Rapid growth

Today there are just 9,400 institutional SFR homes. Those investor commitments and pipelines would see this rise to over 50,000 by the end of 2025, reflecting growth at twice the rate of UK multifamily.

That steep trajectory has also been seen in the U.S. As the most mature build-to-rent market. The U.S. has the largest institutional SFR market, accounting for 3% of rental houses. If the UK were to see the same penetration of its 3 million rental houses, it would rise to 95,000 institutional SFR homes. Based on the current rate of accelerating growth, it would take just five years.

So where next for SFR in Europe? Ireland and France are the next likely contenders to challenge the UK for top spot. The emerging Irish multifamily market defied the deal slowdown at the start of 2023, as the only market to see year-on-year growth (+28%). Investors seeking scale may soon see potential in rental housing in a country where 90% of homes are houses.

Based on sheer size, by far the largest potential market is France, where OECD reports 25 million houses and 40% of all housing stock being rented. Investment has tended to focus on Paris, however, in 2022 CNP Assurance’s €2.4bn purchase of over 7,600 affordable homes in mainland France marked a shift.

Investors are clearly pursuing diversity in living, following renters out of the city and into new tenures and housing types.

The UK may be the star of SFR investment now, but it won’t stop there. European housing markets are undergoing a fundamental change, as they wrangle with a core undersupply of housing. Looking ahead, investors will be essential to new supply and single-family rental will be a key part of that.